Exclusive-Shein, hit with big fines, boosts internal controls

By Helen Reid

LONDON (Reuters) -Online fast-fashion retailer Shein is strengthening its controls after a string of fines over data privacy breaches, fake discounts and greenwashing, according to a letter to investors, internal memos and two sources with direct knowledge of the plan.

Shein, which ships cheap clothes and accessories direct from factories in China to more than 150 countries, has grown to become the world's biggest fast fashion retailer by sales. But its rapid expansion has been accompanied by regulatory breaches in multiple markets.

In a letter to investors reviewed by Reuters, executive chairman Donald Tang said the company has created a "Business Integrity Group" that connects compliance, governance and external affairs teams, and has also expanded its internal audit capabilities to strengthen "discipline".

In the past three months Shein has faced mounting penalties: a 150 million euro ($174.53 million) fine from France over website cookies collecting consumer data without consent, a 40 million euro penalty from France's antitrust agency for misleading discounts, and a 1 million euro fine from Italy over greenwashing. Shein is contesting the 150 million euro fine.

Further fines could follow if a European consumer protection probe finds that products sold on its website fail to meet EU safety standards.

Founded in China and headquartered in Singapore, Shein has filed for a stock market listing in Hong Kong, after failed attempts to list in New York and London.

According to the letter, Shein has piloted enhanced internal controls in the United States, Canada, Brazil and Mexico.

The company declined to comment on the letter's contents.

It is currently hiring for two governance, risk and compliance policy analysts and one internal audit manager in Los Angeles, according to its career website and LinkedIn. It was not clear if the jobs being advertised are additional roles.

The internal overhaul focuses on areas where Shein faces legal risk, like breaches of copyright and product safety laws, a separate source with direct knowledge of the matter said.

As Shein's global profile has grown, so too have its risks, prompting senior management to allocate more resources to address persistent compliance problems, the source said.

MOUNTING FINES AND SLOWING GROWTH

Tang acknowledged "heightened challenges" in the second quarter, citing U.S. tariffs and "intensifying political and regulatory headwinds" in Europe. The letter, which has not been previously reported, was sent on August 25, according to a second source.

"In Q2 we grew firmly in line with both our global expansion plan and our financial projections," Tang wrote.

The end of duty-free treatment for low-value online orders has hit Shein's U.S. sales - the company's largest market - forcing it to raise prices to offset higher costs. 

Coresight Research estimates Shein's U.S. revenue will grow 20.1% in 2025, to $17.2 billion, down from estimated growth of 50% in 2024. Shein has shifted more of its marketing spending to Europe (including the UK), which is expected to surpass the U.S. in revenue for the first time this year, growing 30.7% to $17.9 billion. 

GROWING CRITICISM OF SHEIN'S BUSINESS PRACTICES

Europe, especially France, has become the epicentre of scrutiny of Shein's business practices.

An investigation by a French agency of the Organisation for Economic Cooperation and Development (OECD) prompted by a complaint from two French lawmakers found last week that Shein does not comply with OECD guidelines on responsible business conduct, due diligence, working rights, environmental standards, and transparency.

"Information about the activity of the group, its finances and its governance remains extremely rare, hindering a clear analysis of its business, its revenue and its structure in the European Union and globally," the final report, published on September 29, stated.     

A Shein spokesperson said the investigation "at times did not reflect the neutral mediation intended by the OECD framework" and rejected claims that Shein is in breach of various EU legislation, "specifically those that are not yet applicable".  

($1 = 0.8595 euros)

(Reporting by Helen Reid; Editing by Elaine Hardcastle)